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Indianapolis is on the verge of losing one of its most prominent public companies.

The Steak n Shake Co. is
planning to change its name to Biglari Holdings Inc. and move its headquarters to San Antonio. The Steak n Shake restaurant
chain would remain as a subsidiary of the renamed company and retain a presence in Indianapolis.

Chairman and
CEO Sardar Biglari plans to put the changes to a shareholder vote at the company’s annual meeting April 8 in New York
City.

Biglari

Biglari, 32, operates the private equity Lion Fund and other investment vehicles out of San Antonio,
where his family has lived since they emigrated from Iran in the 1980s.

The Steak n Shake corporate Web site
still lists the Century Building at 36 S. Pennsylvania St. as the company’s headquarters, but a Jan. 29 announcement
about the pending name change includes a San Antonio dateline.

The company already lists San Antonio as the “address
of principal executive officers” in recent Securities and Exchange Commission filings, and a high-ranking company official
confirmed to IBJ that the publicly traded company will be based in Texas.

The company has reserved the
ticker symbol BH on the New York Stock Exchange, and will switch from SNS on April 9 if a majority of shareholders approves
the change.

It wasn’t clear whether local jobs would be affected by the move. Steak n Shake already has
scaled back its headquarters operation but still has employees spread over a couple of floors it leases in the eight-story
Century Building downtown. The company has just two named executive officers, Biglari and Interim CFO Duane Geiger.

Steak n Shake was founded in Normal, Ill., in 1934 but has had its headquarters in Indianapolis since the 1970s.

Any time a headquarters leaves, it’s a blow to the city, said Indy Partnership President Ron Gifford, who
said he hadn’t heard about a potential move for Steak n Shake.

“Having a corporate headquarters is
the equivalent of a company making a commitment to its home, both literally and figuratively,” Gifford said. “When
a corporate headquarters moves, the investment in the community tends to decline.”

The company telegraphed
a potential headquarters move in August 2008, when it withdrew a request for a $100,000 tax abatement and $200,000 state training
grant in exchange for retaining 160 jobs and investing $2.5 million in new equipment at its local headquarters.

Biglari and other Steak n Shake officials did not return phone messages by press time.

Aggressive
moves

Biglari used a proxy fight to seize control of the burger chain in 2008, then
promptly cut costs, launched new promotions and trimmed spending on restaurant maintenance and investment from an average
of $55 million per year to just $5.8 million last year.

The moves helped the chain break a 14-quarter streak
of declining same-store sales, but also raised questions about whether Biglari is jeopardizing Steak n Shake’s future
in exchange for short-term profits.

Biglari in June persuaded the board to transform Steak n Shake into a holding
company for a diverse range of investments and give Biglari sole discretion over asset allocation. The board’s vote
essentially allowed the hedge-fund owner to use the publicly traded company as a personal investment vehicle.

The unanimous vote came after Biglari, the board chairman, managed to push out every board member unwilling to give him dictatorial
authority over Steak n Shake despite his relatively modest ownership stake. Biglari personally owns about 7 percent of the
shares in Steak n Shake and controls another 5 percent through his Lion Fund.

The board now has five members,
including Biglari, down from nine. Now that the board has given Biglari sole authority over all investments, the question
is, who holds Biglari accountable?

Former interim CEO Wayne Kelley, who resigned from the board in March 2009,
blasted the young executive at the time for ignoring the board’s advice and neglecting the Steak n Shake brand.

“Although our current chairman and CEO espoused openness and transparency, the opposite has been the case,”
Kelley wrote in his resignation letter. “The board has not been actively involved in developing the vision and strategy
of the business, but rather has been informed about it belatedly.”

Name game

Biglari, a supremely confident Warren Buffett disciple, hasn’t been shy about attaching his own name
to the Steak n Shake chain. A photo and greeting from Biglari now welcome guests at each of Steak n Shake’s 486 locations
in 21 states.

Renaming the parent company Biglari Holdings acknowledges a fledgling but successful turnaround—the
company earned $5.5 million in its fiscal fourth quarter compared to a year-ago loss of $3.4 million. It also rebrands the
company as something more than a hamburger and milkshake factory.

Biglari in August closed on a $23 million deal
to merge Steak n Shake with another holding company he controlled, Western Sizzlin Corp., which franchises a chain of 105
steak restaurants and also owns stakes in Houston-based Mustang Capital Advisors and Bellevue, Wash.-based barter network
ITEX Corp.

In December, Steak n Shake offered to acquire Fremont Michigan Insuracorp Inc. in a deal worth as
much as $37 million, apparently so Biglari could use the small insurer’s $60 million investment portfolio to fund more
acquisitions. The company also initiated an unusual 1-for-20 reverse stock split that pushed the per-share price above $300,
out of reach for many short-term investors.

Steak n Shake investor Max Olson, who runs Salt Lake City-based Max
Capital Corp., said the reverse split and name change are “unnecessary” but shouldn’t do any harm. He picked
up his Steak n Shake shares as part of the deal with Western Sizzlin.

“I think maybe it’s a little
too much, too fast,” said Olson, who met Biglari at last year’s annual meeting for Buffett’s Berkshire Hathaway
in Omaha. “He’s done a fantastic job of turning the company around. But in my view, it would have been better
to wait a little longer.”

Other investors see the change as necessary since they now are betting not so
much on a single restaurant chain, but on the potential of an up-and-coming asset manager.

Channeling
Buffett

In fact, the company’s latest annual report lists a new No. 1 risk-factor investors should
consider before they buy Steak n Shake’s shares: the potential loss of Biglari.

“If for any reason
the services of Mr. Biglari were to become unavailable, there could be a material adverse effect on our business, since he
is singularly responsible for business and investment activities,” the company said.

Other risks include
restaurant-industry competition, the economy and debt covenants—but those don’t merit a mention until later down
the list.

Wall Street analyst Michael Gallo of New York-based C.L. King & Associates Inc. reiterated a neutral
rating on Steak n Shake shares in a Feb. 1 note, citing a tough restaurant environment and the risk that Biglari will overpay
for an acquisition.

“While progress over the last couple of quarters has been encouraging, we believe the
key determinant of value creation going forward will be the success of Steak n Shake in transitioning into a conglomerate-like
holding company,” he wrote.

Biglari guided his hedge fund to post strong returns in a booming market,
and he successfully agitated for changes at Friendly Ice Cream Corp. that led to a profitable sale of the Massachusetts-based
company. Otherwise, he doesn’t have much of a track record suggesting he is capable of designing his own version of
Berkshire Hathaway.

He and Buffett share similar visions for what makes an attractive investment, along with
an interest in courting long-term investors. Biglari’s desire to include himself in the branding for Steak n Shake calls
to mind the approach Buffett has taken with Berkshire Hathaway’s Geico subsidiary, where the popular Gecko mascot frequently
cites Buffett as evidence of the company’s strength and stability.

But there are differences, too. Berkshire
Hathaway just split its B shares in the opposite direction, making them accessible to more investors as part of a $34 billion
deal for the railroad Burlington Northern Santa Fe. Buffett didn’t name his company after himself, electing to keep
the moniker of the now-defunct textile company that launched his conglomerate.

And Buffett famously earns a
base annual salary of just $100,000, the same he’s taken home for more than 25 years.

Biglari, on the other
hand, sought and received a 220-percent raise last year to $900,000, reimbursed himself about $500,000 for the proxy fight
he used to take over Steak n Shake, and paid himself another $48,000 last year for travel expenses, including accommodations
at the Conrad Indianapolis.•

Schouten is an Indianapolis native and Indiana University graduate who joined IBJ in 2006 after stints at the Sarasota Herald-Tribune and the Arizona Republic. He covered the real estate beat for most of those years, and launched the Property Lines blog, before taking over as managing editor in March 2013.

Schouten has been honored for investigative and enterprise reporting by the Society of American Business Editors and Writers, the Alliance of Area Business Publications and the Society of Professional Journalists in Indianapolis. During his tenure as moderator of Property Lines, the blog was recognized twice as the best among business journals by the AAPB.

Schouten serves as secretary of the board of governors of the Society of American Business Editors and Writers, and is set to serve as the organization's president in 2016. He is treasurer of the Indianapolis Press Club Foundation, and a board member of the Indianapolis Public Schools Education Foundation.

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